Presentation on Private Equity Exit Considerations
April 2012
Exits: Key Considerations for Private Equity
Exits by Year
Exit Capital ($B)
$140
$120
# of Exits
VALUE
600
510
449
434
$100
420
350
400
$80
300
207
$60
ECONOMY
TAX
MORALE
TIMING
200
$40
$20
500
$121
$120
$80
$40
$106
$104
$0
100
0
2006
2007
2008
2009
2010
2011
Median Exit EBITDA Multiple
9.9x
10.0x
9.3x
9.0x
8.7x
8.6x
8.5x
8.0x
FINANCING
8.0x
8.0x
7.4x
7.0x
6.9x
6.6x
6.0x
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Pitchbook & Grant Thornton, 2011.
1
Plan Your Exit
Know How to Get Out Before You get In
•
•
•
ONEX – Sky Chefs EBITDA (1987-2000)
Abundance of natural buyers?
• Strategic acquiror?
• Financial buyer?
• IPO candidate?
Confidentiality issues?
• Vendors, competitors, customers
120
107.0
100
80
EBITDA ($MM)
•
Micro Analysis – Is Your Company
Ready?
•
•
If NO – nothing else matters
Execution of the investment thesis is key
• Capex, acquisitions, asset sales, HR
• Tangible success? ROI?
• Opportunity cost – time / money /
outlook
60
46.0
CAGR: 15.1%
40
25.6
CAGR: 8.7%
1987
1994
20
0
IRR:
Multiple of Capital:
2
2000
29.7%
16.5x
Exit Paths – IPO
•
•
•
60
51
50
IPO market can be shut (mid-late 2008)
40
40
30
30
Profit margin disclosure
24
20
14
10
Hard to “exit” 100%
•
66
70
Confidentiality is lowest
•
•
Typical market cap: $1 billion
The most “macro sensitive” option
•
•
Number of PE-Backed IPOs
Rarely a “mid-market” option
-
Exit in stages over time
2006
2007
2008
2009
2010
2011
Average IPO Market Cap ($MM)1
1,315
1400
1,267
1000
800
1,200
1,099
1200
827
772
700
600
400
200
2006
1.
Source: S&P Capital IQ. average value of sponsor backed offerings of at least 5% of shares offered with gross proceeds over $50 mm.
3
2007
2008
2009
2010
2011
2012
Exit Paths – Auction vs. Targeted Sale
Auction
Targeted Sale
•
The most common mid-market exit
•
Effective for “natural fit”
•
Story needs broad appeal
•
Often involves unsolicited approach
•
Consumes time and management
•
Value not compromised
•
Confidentiality “contained”
•
Confidentiality maximized
Case–Study
– ONCAP/CSI
Case Study
ONCAP/WIS
International
Case Study – ONCAP/WIS International
Date:
Calls Made:
Buyer Interest:
Preliminary Bids:
Result:
January 2007
18 Strategic / 52 Private Equity
Date:
November 2010
Buyer:
Moody’s Corp.
Rationale:
7 Strategic / 36 Private Equity
12 Private Equity
8.1x ROI / 73.7% IRR
Result:
4
Complimented global effort in
regulation, risk management
and education tools
5.8x ROI / 57.2% IRR
Financing Considerations
…And High Equity Contributions Will Drive
Values Higher
Strong Debt Multiples = Strong PE Interest…
6.0x
60.0%
5.6x
5.5x
5.0x
50.8%
50.0%
39.5%
40.0%
4.8x
4.7x
37.8%
4.7x 4.7x
4.5x
4.5x
4.2x
33.6%
30.0%
4.3x
26.2%
4.2x
30.0%
4.1x
4.0x
3.9x
4.0x
20.0%
3.8x
3.4x
3.5x
20.7%
10.0%
3.3x
7.0%
3.0x
0.0%
'97
'99
'01
'03
'05
'07
'09
'11
'87
Debt/EBITDA
'90
'93
'96
'99
'02
Equity Contribution to LBOs
Source: Lcdcomps.com
5
'05
'08
'11
Other Exit Considerations
Tax Considerations –Tax
Number of Exits (2010)
Fundraising – Inventory of PE-owned Companies
180
7,000
163
Number of PE-Backed Companies
160
Number of Exits (2010)
140
120
104
100
84
83
80
60
40
20
6,000
5,164
5,000
5,968
4,549
3,678
4,000
2,894
3,000
2,223
2,000
1,000
-
Q1
•
5,435
5,745
Q2
Q3
'04
Q4
•
•
Tax rate fears drove activity in late
2010
6
'05
'06
'07
'08
'09
'10
LP’s like to see realizations
40% of PE-owned companies have
been held more than 5 years
'11